Fear of a Fed Planet

Why Rick Perry made a bid for the anti-Bernanke vote.

Rick Perry’s Fed-bashing isn’t unusual for the GOP

Rest easy: Rick Perry probably isn’t going to execute Ben Bernanke. When he told a crowd of Iowa Republicans Monday that “we would treat him pretty ugly down in Texas” if the chairman of the Federal Reserve “print[ed] more money between now and the election,” it wasn’t exactly a Kinsley gaffe, defined as when a politician tells the truth. Instead, call it a “Perry gaffe”: when a politician doesn’t mean what he says, but means to say it.

Castigate Perry for his crude style. Go right ahead. On substance, however, Perry is clearly within the bash-the-Fed mainstream of the Republican Party. His comments came two days after Rep. Ron Paul, R-Texas, scored a strong second place at the Ames straw poll, and eliminating the Fed is one of the causes of Paul’s life. Paul lost narrowly to Rep. Michele Bachmann, who was one of the GOP’s loudest voices against the Fed’s 2010 plan to spent $600 billion on mortgage-backed securities—the second round of “quantitative easing.” Both of them voted for Paul’s 2010 “audit the Fed” legislation, an effort to crack open the central bank’s books that passed with bipartisan support. In the modern GOP, you either hate the Fed or you go home.

Fed fatigue isn’t just for Republicans. Pollsters ask few questions about the Fed, but the information we do have shows a public that has turned wildly against it. In the 1990s, and even in the 2000s, polls showed that longtime Fed Chairman Alan Greenspan was one of the most popular political figures in the country. Occasionally, voters gave him more credit for the economy than Bill Clinton. Before Greenspan finished his last term, the NBC/Wall Street Journal poll gave him a 43-percent approval rating and a disapproval rating of 12 percent. Americans have never felt that way about his replacement; the comparable figures for Bernanke in a late 2009 Bloomberg poll were 35/26. Republicans just grew colder on the Fed faster than anyone else. In 2008, according to Gallup, 61 percent of them approved of Bernanke. In 2009, only 36 percent did.

Fed watchers can’t quite believe what Perry said.

“To call it treasonous or almost treasonous, to me is outrageous, really,” says Donald Kohn, who spent most of his career working at the Fed, and retired as vice chairman of the Board of Governors in 2010. Bernanke is “trying to follow what Congress has given as its goals for the Fed,” he said. “To threaten, to use names like that, is not productive.”

So what do Americans think of the Fed now? What inspired the question to Perry? And what gave him the confidence to start talking treason?

“I think it reflects two things,” says Kohn. “One is that the economic recovery has been disappointing. The Fed has been trying to help the recovery along. But the efforts of the Fed and the government haven’t been enough to put people back to work. So they look at the economy and think, surely, the government could have done better. They include the Fed in that sentiment. Two, I think it reflects a feeling that the Fed, through its actions in the crisis, helped the large banks and didn’t do anything to help ordinary people.”

Anger at the Fed, and mistrust in the Fed, did not spring up because Ron Paul willed it to. It’s a reaction to failure.

“The Fed has become politicized,” argues Allan Meltzer, a professor of economics at Carnegie Mellon and a historian of the central bank. “It’s doing fiscal operations. It’s doing a lot of things that the public doesn’t like, like bailing out the banks. So it’s unpopular, and deservedly so.”

You need to understand that narrative to understand why Perry thinks the public is with him when he paints prison stripes on Bernanke. In the Academy Award-winning documentary Inside Job, the Fed comes off as a sleepy, reckless institution; Frederic Mishkin, a Fed governor who resigned just as the crisis was building, is presented as a stuttering ninny. In Too Big to Fail, the film adapted from Andrew Ross Sorkin’s reporting on the crash, Bernanke is played by Paul Giamatti in full cynic mode. He has Al Capone’s pistol on his wall; he plays harder with members of Congress than bankers, in whom he has blind faith.

When the second round of quantitative easing went into effect, Bernanke had to sell it hard, warning of higher unemployment and slower growth if the central bank didn’t spend $600 billion to buy up bonds. When the process was over, unemployment was as high as ever, but commodities cost around 25 percent more thanks in part to a slightly weaker, inflated dollar.

“The fact that Rick Perry says something does not necessarily mean that he’s wrong, and that the institution has conducted itself in an impeccable way,” says James Galbraith, an economist and professor at the University of Texas’s Lyndon B. Johnson School of Public Affairs. “The Fed allowed a great overstatement of its powers to become conventional wisdom. It pretended that QE1 and QE2 would achieve something substantial in the economy, when in fact it couldn’t.”

Make too many promises, break too many hearts, and sooner or later you’ve got politicians accusing you of “treacherous, treasonous” politics. Perry, a latecomer to the race, is also a latecomer to the Fed-bashing cause. For a while, Herman Cain served on the Federal Reserve Bank of Kansas City, and that one line on his resume has caused him no end of grief.

“I’ve been in the belly of the beast,” he explained in a YouTube video, after talking to Iowans who were terrified of his Fed record. “The current leadership of the Federal Reserve has pumped billions of dollars into the economy in an effort to fight unemployment, only to see the value of the dollar decrease.”

That’s easy for voters to understand. What’s harder for them to understand, especially after the Fed has disappointed them so badly, is that the central bank really can play a role in responding to a new economic slowdown but is not being allowed to: Two seats on the Fed’s Board of Governors sit vacant. President Obama has seen holds put on previous nominees, and had real trouble getting candidates to replace them. The trouble starts with a public that doesn’t trust the Fed any more. To them, Perry makes sense.